Post-election honeymoon over as business confidence falls

02 Nov 2015

Business confidence has fallen to its lowest level since 2013 as uncertainty for the year ahead impacts on companies’ plans for the future. The latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) suggests economic growth is slowing, continuing reliance on domestic demand, with little evidence of a rebalancing towards exports and manufacturing.

Key findings for Q4 2015:

The BCM Confidence Index stands at +15.6, down from +22.4 last quarter and the lowest level for 2 years – but still in positive territory

Worryingly, capital investment growth continues to fall and is expected to slow further over the next 12 months as uncertainty about the global economy prevails

Companies are also not planning any growth in taking on more staff, increasing salaries in the year ahead or spending more on staff development, despite staff turnover and skill shortages becoming a greater challenge

Confidence fell across most sectors but particularly in the production sector, as global pressures increased

Stephen Ibbotson, ICAEW Director of Business, said:

“After a post-election bounce, confidence has fallen further. The political honeymoon is over and George Osborne will need to remember this when delivering his Autumn Statement later this month. Although business confidence remains in positive territory, a number of factors cannot be ignored. Business investment is muted, skills shortages are becoming more of a challenge and staff and salary increases for 2016 are lower than for the last 12 months and the outlook for exports remains poor. Any announcements from the Chancellor impacting on business could send confidence falling, especially as the Apprenticeship Levy, Living Wage and increase in Insurance Premium Tax are yet to come into effect.”

"Growth over 2015 as a whole is looking solid, though weaker than 2014’s stellar performance, and confidence, while down on last quarter, remains in positive territory. Despite slowing, corporate profitability remains strong and business needs to invest in innovation and new ideas to ensure a more sustainable and vibrant business environment in the UK.

"We also need a step-change in mind-sets from both the Government and the business community with a greater emphasis on our export capabilities - which are currently being underutilised - and also address the skills imbalance Britain faces in order to equip our workforce for the future. With a number of 'unknowns' on the horizon and business leaders awaiting the Government's details on big ticket items such as EU membership reform, the next 12 months could prove a true test of UK business confidence."

‘Northern Powerhouse’ not seeing an increase in confidence

The South of England continues to see optimism levels holding firm, but Northern England and the East and West Midlands are experiencing a confidence decline, despite the focus from Government on the ‘Northern Powerhouse’ and the opening of projects such as Resorts World Birmingham.

Spending power boosted

Falling prices at the petrol pumps have contributed to the continuation of ‘no-inflation’ which continues to boost spending power. Retail & Wholesale is the only sector to see an increase in confidence this quarter. There are signs though of slowing salary growth and, with inflation expected to increase in 2016 and a possible rise in interest rates, this spending boost for households may be short-lived.

All sectors apart from Energy, Water & Mining, are reporting that the availability of non-management skills is more of a challenge than a year ago. The Transport & Storage sector as well as Construction is experiencing massive skill shortages. Transport & Storage has also seen spare capacity halve over the last 12 months. If this continues, productivity in the UK may be impacted as businesses struggle to get the supplies they need.